A consumer is choosing between two goods. Their affordable combinations are shown by a straight budget line, and their preferences are shown by a series of curved indifference curves, where curves further from the origin represent higher satisfaction. The optimal choice, Point A, is where the budget line just touches the highest possible indifference curve. Consider another point, Point C, which lies on an even higher indifference curve than Point A, but is located entirely outside the budget line. Why is Point A chosen over Point C?
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Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
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Contrasting Resource Allocation Mechanisms
A consumer is choosing between two goods, 'cinema tickets' and 'nights out', with a fixed budget. On a graph, a straight line shows all the combinations of these two activities the consumer can afford. A set of curved lines shows combinations that provide the consumer with equal levels of satisfaction, with curves further from the origin representing higher satisfaction. The consumer's optimal choice, Point A, is located where the straight 'affordability' line is tangent to (just touches) the highest possible 'satisfaction' curve. What does Point A represent?
A consumer is choosing between two goods, represented on a graph. A straight line shows all affordable combinations of the goods, and a series of curved lines show combinations that provide equal satisfaction (with curves further from the origin representing higher satisfaction). The consumer's optimal choice is Point A, where the 'affordability' line just touches the highest possible 'satisfaction' curve. Consider another point, Point B, which is also on the 'affordability' line but lies on a lower 'satisfaction' curve. Why is Point A considered a better choice for the consumer than Point B?
A consumer is choosing between two goods, represented on a graph. A straight line shows all affordable combinations of the goods, and a series of curved lines show combinations that provide equal satisfaction (with curves further from the origin representing higher satisfaction). The consumer's optimal choice is Point A, where the 'affordability' line just touches the highest possible 'satisfaction' curve. Consider another point, Point B, which is also on the 'affordability' line but lies on a lower 'satisfaction' curve. Why is Point A considered a better choice for the consumer than Point B?
A consumer is choosing between two goods. Their affordable combinations are shown by a straight budget line, and their preferences are shown by a series of curved indifference curves, where curves further from the origin represent higher satisfaction. The optimal choice, Point A, is where the budget line just touches the highest possible indifference curve. Consider another point, Point C, which lies on an even higher indifference curve than Point A, but is located entirely outside the budget line. Why is Point A chosen over Point C?
Optimizing Weekly Purchases
A consumer maximizes their satisfaction given their budget at any point where one of their indifference curves crosses their budget constraint.
A consumer is choosing a combination of two goods, 'pizza slices' and 'soda cans', to purchase with a fixed weekly budget. They are currently considering a combination on their budget line where they are personally willing to give up 3 cans of soda for 1 more slice of pizza. However, the market price of a pizza slice is only twice the price of a soda can. To achieve a higher level of overall satisfaction, what should the consumer do?
Evaluating a Consumer's Choice
A consumer is spending their entire budget on two goods: coffee and croissants. At their current consumption level, they are willing to give up 4 croissants to get one more coffee. The market price of a coffee is $3 and the price of a croissant is $1. To increase their overall satisfaction, what should this consumer do?